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Question 1 (Multiple Choice Worth 5 points) Tulip Products Industries paid a dividend of $2.05 yesterday. If the firm?s growth in dividends is expected to remain at a flat 1.5 percent forever, what is the cost of equity capital for Tulip if the price of its common shares is currently $24.48? 8.37% 8.5% 9.87% 10.00% Question 2 (True/False Worth 5 points) The pretax operating cash flow (EBITDA) break-even point is determined by how many units will have to be sold for pretax operating cash flow to equal $0 True False Question 3 (Multiple Choice Worth 5 points) Level Co. has a preferred share issue outstanding with a current price of $52.00. The issue paid a dividend of $4.16 yesterday. What is the firm?s cost of preferred equity? 7.00% 7.5% 8.00% 8.50% Question 4 (Multiple Choice Worth 5 points) Natural Footware has total fixed costs of $30,000 per month, which includes $3,000 per month of depreciation expense. It sells natural sole shoes for $29 a pair, and the variable cost of each pair of shoes is $20. What is the accounting operating profit (EBIT) break-even point for Natural Footware? 931 pairs of shoes 3.000 pairs of shoes 3,333 pairs of shoes 3,667 pairs of shoes Question 5 (Multiple Choice Worth 5 points) Life Balance, Inc. has found that its cost of common equity capital is 15 percent and its cost of debt capital is 9 percent. If the firm is financed with $6 million of common shares (market value) and $4 million of debt, what is the after tax weighted average cost of capital (WACC) for the company if it is subject to a 30 percent marginal tax rate? 9.7% 10.65% 11.16% 11.52% Question 6 (True/False Worth 5 points) The constant-growth dividend model should not be used if the dividends are expected to be zero into the identifiable future. True False Question 7 (Multiple Choice Worth 5 points) Moonshine Drinks has discovered that the extent of the demand for its high octane drink is 4 million bottles per year. If the fixed costs for the new product are $8 million and the sales price per bottle is $25, then what is the maximum variable cost per bottle that the firm needs to break even on a pretax operating cash flow basis? $2 $22 $23 None of the above. Question 8 (True/False Worth 5 points) One interpretation of depreciation and amortization is that it is a fixed cost of the firm. True False Question 9 (Multiple Choice Worth 5 points) Accounting operating profits are also knows as EBIT EBITDA Net income None of the above. Question 10 (True/False Worth 5 points) The appropriate risk-free rate of return to use in the CAPM is the 3-month Treasury rate. True False Question 11 (Multiple Choice Worth 5 points) Secret Energy Supplies has common shares with a price of $15.44 per share. The firm is expected to pay a dividend of $1.25 one year from today, and dividends are expected to grow at 15 percent for two years after that ant then at 2 percent thereafter. What is the implied cost of common equity capital for Secret Energy? 11.00% 12.00% 13.00% 14.00% Question 12 (Multiple Choice Worth 5 points) Delescio Produce had a degree of accounting operating leverage equal to 1.875 during the most recent period. If the firm?s EBITDA was $50,000 and fixed cash expenses equal to $25,000, then what was Delescio?s depreciation and amortization during the same period? $1,000 $3,667 $10,000 $100,000 Question 13 (True/False Worth 5 points) The higher a firm?s unit variable costs, the greater the degree of operating leverage that the firm is utilizing. True False Question 14 (Multiple Choice Worth 5 points) Marigold Products is expected to pay a dividend of $1.98 one year from today. If the firm?s growth in dividends is expected to remain at a flat 4 percent forever, what is the cost of equity capital for Marigold if the price of its common shares is currently $33.00? 6.00% 6.24% 10.00% 10.24% Question 15 (True/False Worth 5 points) In order to use a multistage-growth dividend model to estimate the cost of equity for a firm, the analyst must estimate multiple growth rates in dividends as well as the amount of time that each growth rate will apply. True False Question 16 (True/False Worth 5 points) The CAPM can be used to estimate the cost of preferred equity for a firm. True False Question 17 (True/False Worth 5 points) Break-even analysis tells us how many units must be sold in order for a project to break even on a cash flow or an accounting profit basis. True False Question 18 (True/False Worth 5 points) We can accurately calculate the market risk premium by direct observation. True False Question 19 (True/False Worth 5 points) Earnings before interest and taxes (EBIT) does not include depreciation and amortization expenses. True False Question 20 (Multiple Choice Worth 5 points) ______________ provides an estimate of the expected cash flows as well as information on the distribution of the cash flows that the project is likely to produce. Simulation analysis Sensitivity analysis Scenario analysis None of the above

Paper#5313 | Written in 18-Jul-2015

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